Govt gets wake-up call from RBI on IDBI Bank's health: A sneak peek into financials of state-owned lender

Government-owned IDBI Bank is in news again after a report said Reserve Bank of India (RBI) has informed finance ministry about the poor financial position of the bank and urged the government to take remedial action.

Government-owned IDBI Bank is in news again after a report said Reserve Bank of India (RBI) has informed finance ministry about the poor financial position of the bank and urged the government to take remedial action.
"It was found out during our inspection that the bank's mechanism for identifying bad loans is also deficient," the ET quoted the RBI as saying in its letter. The central bank thinks that IDBI's non-performing assets could be higher than what's been reported.
The lender in which the government has 77.79% stake said one fourth of its loan book turned sour for quarter ended December 2017. The bank reported 24.72% of gross non-performing assets (NPAs) ratio in Q3 of current fiscal. The ratio was the highest among its peers.

Meanwhile, email queries sent to the bank on its worsening financial position remain unanswered.

The government has decided to sell a part of its stake to move toward privatisation of public sector bank. On January 24, 2018, FM Arun Jaitley said the decision would be taken at right time.

As part of the government's Rs 2.11 lakh crore recapitalisation plan, the lender was allocated Rs 10,610 crore in FY18, the highest among the state-run weak banks.
Announced in October 2017, the capital infusion would be spread over two years, including Rs 1.35 lakh crore worth recapitalization bonds.
Last year in May, IDBI Bank became the first lender to be put under a revised prompt corrective action (PCA) for its high non-performing assets and negative return on assets.

The move came after the bank's NPAs shot up by 80 per cent to Rs 35,245 crore and it booked a loss of Rs 2,255 crore for the December quarter of FY 2016-17. Its return on assets also declined to (-) 2.32% at the end of the third quarter of 2016-17.
A bank is placed under PCA framework based on the audited annual financial results and RBI's supervisory assessment. A month before putting IDBI under PCA, the central bank had made it clear that the banks' capital, asset quality and profitability would be the basis of the PCA framework on which the banks would be monitored.
The bank had said the action would be taken when a bank breaches the risk threshold that includes restriction on dividend payment/remittance of profits, restriction on branch expansion, higher provisions, restriction on management compensation and director's fees.
The lender's return on assets has been constantly falling during the last five fiscals. Return on assets (ROA) ratio is a profitability ratio that measures the net income produced by total assets during a period by comparing net income to the average total assets. ROA measures how efficiently a company can manage its assets to produce profits during a period. The ratio is calculated by dividing net income by average total assets.
For the fiscal ending March 2013, the ROA ratio stood at 0.62%. It gradually fell to 0.28% for the fiscal ending March 2015. In the next fiscal, the ratio entered negative territory and reached -0.99%.
During the last fiscal, the ratio worsened further to -1.37%.
The bank's return on equity (ROE) ratio saw similar trend during the last five fiscals. The ratio is the net income of a business during a year to its average shareholders' equity during that year. It is a measure of profitability of shareholders' investments. It shows net income as a percentage of shareholder equity. Higher values are favourable which denote the company is efficient in generating income on new investment.
ROE ratio is calculated by dividing annual net income by average stockholders' equity.
For fiscal ending March 2013, the ratio stood at 10.31%. It gradually fell to 4.29% at the end of March 2015 fiscal.
It fell into negative territory in March 2016 fiscal and stood at -16.05%. During the last fiscal, it worsened to -25.16%.
On a positive note, the bank's net interest margins fell marginally during the last fiscal. Net interest margin or NIM denotes the difference between the interest income earned and the interest paid by a bank relative to its interest-earning assets like cash.
Net interest margin is equal to the difference of investment returns and interest expenses divided by average earnings on assets. It stood at 1.83% at end of March 2017. In March 2016 fiscal, the figure stood at 1.85%.
The bank reported a fifth straight quarterly loss for the quarter ending December 2017 on a rise in provisions for bad loans.
Net loss for the quarter ending December 31 narrowed to Rs 1,524 crore ($239.63 million), from Rs 2,255 crore in the corresponding quarter a year earlier. Gross bad loans as a percentage of total loans stood at 24.72 per cent at end-December, compared with 24.98 per cent in the previous quarter and 15.16 per cent a year ago.
Provisions for bad loans rose 16.4 percent to Rs 3,650 crore. The bank's capital adequacy ratio stood at 11.93%.